Saying No to the Government

It's tough to say no to an overbearing uncle who prints money.

William A. Cooper, the 65-year-old chief executive of $18 billion (assets) TCF Financial, does things his own way. He worked as a Detroit cop while earning his accounting degree, revived Minnesota's Republican Party when it was considered a lost cause and got a $105 snowmobile speeding ticket overturned by arguing to a state appeals court that the lower than normal speed limit wasn't posted. (A "Louisiana speed trap," he called it.)

On Apr. 22 TCF Financial became the largest bank to repay the government's TARP bailout money, wiring $361 million to Uncle Sam. Going his own way paid off for Cooper this time, too. TCF's deposits surged 14% in the first quarter, and much of that influx appears to be the result of its Mar. 2 announcement that it planned to get out of TARP.

The evidence of that? "E-mails. I got one today: Somebody brought $625,000 over because they liked what we did with the TARP," Cooper reports. "People walked up to me in restaurants to shake my hands. We got hundreds of letters of congratulation." Cooper says TCF took the money originally because it was supposed to be a signal his bank was a survivor. Instead, it became a taint. Worse, "every single day there was a new rule and regulation coming down," gripes Cooper, who after taking TARP money took heat for subsidizing an employee trip to a ski resort.

Rejecting Washington micromanagement has populist appeal, particularly in TCF's markets of Minnesota, Illinois, Michigan, Wisconsin, Indiana, Colorado, Arizona and South Dakota. But it's easier said than done, as both business and state and local leaders are learning once again during the current crisis.

Uncle Sam has the money press and makes the rules. It's hard to sever ties completely. TCF isn't forgoing federal deposit insurance, after all, and it's still haggling with the feds on how much it will have to pay to repurchase stock warrants the government got in return for the TARP loan.

At least Cooper is ahead of Kelly S. King, chief executive of BB&T Corp., the nation's 16th-biggest bank, with $143 billion in assets. He sent in BB&T's application to repay $3.1 billion in TARP money in May, after the bank passed its stress test. King has raised $1.7 billion in common equity and $800 million of senior debt, and cut his dividend to raise cash. But so far the feds haven't taken the money. "I see no reason whatsoever the government should object to allowing a company like ours to pay it off," he says. Other big banks, including
Goldman Sachs
,
Morgan Stanley
and
Bank of America
, are now trying to repay TARP money, too.

King says he took the cash because regulators told him they expected him to do it, not because BB&T Corp. needed it. Now he has to limit compensation. Being less ornery and a bigger target than Cooper, he reports he also canceled the annual Florida weekend getaway the bank hosts for its best performers, lest he bring down the "wrath of Congress." He wants out before credit decisions are politicized the way pay and employee junkets have been. "That is the nature of the beast," says King. "It's what governments do."

The states? They're so addicted to federal dollars that they can do little but bluster. Some Republican governors (including those of Alabama, Louisiana, Mississippi and Texas) oppose taking some of the unemployment insurance money in the federal stimulus, because it would require their states to expand jobless benefits for part-time or other workers. But most governors have backed off threats to reject other lumps of stimulus cash. Alaska Governor Sarah Palin ended up vetoing just $29 million in weatherization funds--a tenth of the stimulus funds she said she might turn down. She said taking the weatherization cash would require her to "promote" local building codes, which many Alaska cities don't now have.

South Carolina Governor Mark Sanford rejected $700 million in education stimulus money because it came with too many strings. But the legislature disagreed, state school administrators sued and now Sanford says he'll ask for the state's share--if the South Carolina Supreme Court tells him to.

In a 2007 study Chris Edwards, director of tax policy studies at the libertarian
Cato
Institute, detailed how over the decades Congress has used grants to assert ever more control over policy once left to state and local pols. "If you're elected to help the people of your state it's extremely difficult to turn down money," Edwards observes. While more than 20 states have passed resolutions complaining about the testing and other mandates in the 2002 No Child Left Behind Act, not one has turned down the dollars. Hillsdale College in Hillsdale, Mich. is freakish in choosing to keep government off its back by refusing state and federal aid; most colleges are not willing to pay the price for that kind of independence.

Edwards slams the "hypocrisy" of Texas Governor Rick Perry, who made a dramatic states rights speech in April and even hinted at support for secession. "He issues a press release every time he can dish out $5 million or $10 million in federal money," sniffs Edwards. "If Congress is going to take Texas taxpayers' dollars, we want our fair share back," a spokeswoman for Perry retorts.